CREDIT FOR PERU BOOM LIFTS TOLEDO INTO PRESIDENTIAL FRONT-RUNNER / BLOOMBERG ( HIGHLY RECOMMENDED READING )

Credit for Peru Boom Lifts Toledo Into Presidential Front-Runner

2011-02-25 05:01:01.5 GMT

By John Quigley

Feb. 25 (Bloomberg) -- Alejandro Toledo, Latin America’s most unpopular leader five years ago, has rebounded to become Peru’s leading presidential candidate today as voters credit him with laying the groundwork for 8.8 percent economic growth.


The policies pursued by Toledo from 2001 to 2006, and maintained by President Alan Garcia, led to the fastest growth in two decades and the lowest inflation since the 1930s. That has made Toledo, 64, the front-runner in the April 10 election, according to recent polls, as Peruvians turn away from increased state control in the country’s most stable political transition since democracy was restored in 1980.


“This election is different because it’s being held in the midst of significant economic growth,” said Julio Carrion, a Peruvian-born professor of Latin American politics at the University of Delaware in Newark.


“People see Toledo as the architect of this growth, so they are rewarding him accordingly. It’s his race to lose.”


As president, Toledo fended off calls to resign after pushing through market-oriented measures such as selling government stakes in power companies and negotiating a free-trade agreement with the U.S. that opened the economy to more competition. His popularity plunged to as low as 6 percent in 2004 after he awarded himself an $18,000 monthly salary and acknowledged having a child out of wedlock.


Now, he is campaigning as a leader who understands the struggles of ordinary Peruvians because of his personal journey from shoe-shine boy to president.


‘Clutches of Poverty’


“I escaped from the clutches of poverty in the tundra,” Toledo said at a rally in the mountain-ringed city of Cuzco earlier this month. “Education is freedom, the way out of poverty,” he said before donning a traditional woolen hat and dancing with his wife to an Andean song as about 400 people watched and a barbecue cart offered skewered cow heart.


Toledo enjoyed 28 percent support in an Ipsos Apoyo survey published Feb. 13, up from 27 percent in January and 16 percent in October. Support for lawmaker Keiko Fujimori, the daughter of jailed former President Alberto Fujimori, was unchanged from January at 22 percent. Toledo led protests against her father’s second re-election in 2000.


Backing for former Lima Mayor Luis Castaneda fell 1 percentage point from January to 18 percent, while Ollanta Humala, leader of Peru’s Nationalist Party and an ally of Venezuelan President Hugo Chavez who narrowly lost to Garcia in a 2006 runoff, had 12 percent support. The poll was taken Feb.5-11 and has a margin of error of 2.2 percentage points.


Poll Leader


Toledo also leads in polls published this month by Lima’s Catholic University and Lima-based survey groups Datum Internacional and CPI. Support for Toledo slipped to 28 percent in a Datum poll released Feb. 21 from 30 percent two weeks earlier.


If no candidate wins more than 50 percent of the vote on April 10, a second round will be held on June 5.


Under Garcia, who isn’t eligible for re-election, Peru created 2.5 million jobs, increased annual per capita gross domestic product by 54 percent and raised public investment to 5.9 percent of GDP, a 25-year high. The government cut public debt to 23 percent of GDP from 33 percent in 2006 and earned investment-grade ratings from Standard & Poor’s and Moody’s Investors Service.


Peru’s sol has strengthened 17 percent since July 2006. The premium that investors demand to hold Peruvian dollar bonds relative to U.S. Treasuries rose to 157 basis points from 152 basis points, or 0.05 percentage point, according to JPMorganChase & Co.


Foundations for Growth


“We laid the foundations of economic growth,” said Toledo in an interview in Cuzco. “President Garcia found the table already set and fortunately he maintained it.”


Still, many Peruvians don’t enjoy the benefits of expansion, said Toledo, who was the country’s first democratically elected president of Andean Indian descent.


Peru’s poverty rate runs as high as 77 percent in the central Andes. Toledo, who was raised in a shantytown on Peru’s northern coast, earned a doctorate in human resources from Stanford University near Palo Alto, California, where he met his French-born wife, Eliane Karp. He has worked for the World Bank, the United Nations and the International Labor Organization. Karp speaks Quechua, the language of the Incan empire still used in the Peruvian highlands, while Toledo does not.


Floating Currency


Toledo’s achievements built on measures introduced by President Fujimori, who eliminated price controls, floated the currency and sold off hundreds of unprofitable state companies while serving from 1990 to 2000, said Roberto Abusada, a former chief adviser to the Finance Ministry.


“The best thing Toledo did was not change anything,” Abusada said.


Investors are betting that either Toledo, Keiko Fujimori or Castaneda will win the election and continue policies likely to lead to $50 billion of mining, energy and infrastructure investment during the next five years, Abusada said.


Toledo has pledged to maintain the economic-growth levels reached under Garcia, boost education spending and increase tax collection to 19 percent of GDP, compared with 15 percent now and Chile’s 17 percent. He also wants to lure manufacturing projects to reduce Peru’s dependence on mineral and gas exports.


He says the judicial system is a “disaster” that needs reforming to weed out corruption.


“There is an imbalance between economic growth and social development,” said Toledo in the interview.“It’s very dangerous and could lead to social turmoil.”


“Toledo went through the fire of five years as president and took a lot of hits,” said Martin Carnoy, an education professor at Stanford who awarded Toledo a scholarship at the university in 1970. “He’s a survivor. You don’t come from where he came from without knowing how to survive.”


John Quigley in Lima at +51-1-614-6811 or  jquigley8@bloomberg.net